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Two contrarian signs that a market bottom is approaching have raised their heads. The first is the always somber Marc Faber, the famed proprietor of the Gloom, Boom & Doom Report, who said late last week that the current down-drift in stocks is the beginning of a global bear market.The second is the increasing chatter that the massive U.S. budget and trade deficits are going to come back to haunt the U.S. economy.
Mr. Faber's bearish pronouncements and the general call by economists and other pundits saying this is the time that the trade deficit is going to crush the U.S. economy almost always coincides with a bottom of the US market.
For the most part, virtually every indicator suggests the U.S. market is approaching a bottom. However, a good contrarian indicator, the AAII Index that measures individual investor sentiment, has stayed stubbornly high. Actually, bullish sentiment has been increasing during this market's decline.
Historically, AAII, with a current bullish reading of 45.8%, needs to drop to the 20% range before the market is fully washed out. AAII bearishness has been ticking higher, with 39% of investors ringing the bearish bell. The AAII index weighs bullish, bearish or neutral sentiment. Most of the recent change in stance has been from the neutral camp to either the bullish or bearish side.
Look for the AAII bullish indicator to begin to drop and this will be the last piece of the puzzle telling investors that the selling in this market correction is over.
Also, if Morgan Stanley's (NYSE: MS) Stephen Roach hits the airwaves with a bearish report, we definitely then know the market has bottomed.
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Reader Comments (Page 1 of 1)
8-13-2007 @ 12:54PM
Dick Schreiber said...
I believe an upturn will come of this thjen a downslide to the bottom
and a possible deflation to the gold standard. our kdollar isnt worth much now i think there will be an adjustment in the near future
8-13-2007 @ 1:12PM
jl said...
Only an idiot would believe that this small drop from a record high of 14000 is a true correction. If the market had gone down to 12000 then we would see a realistic correction to the value stocks should be at with all the bad news like higher retail costs ... investigations into land stock companies ... poor earnings reports and the FED printing money!
8-13-2007 @ 1:13PM
jl said...
Only an idiot would believe this!!! This is not a correction a 1000 point loss from an all time record in the DOW is nothing when you have increased retail costs ... home mortgage defaults in the million over the year ... the FED printing money and poor earnings reports. If the market went down to 12000 then you would have a true correction in the wake of all the BAD news this year!!